What makes it even worse, in case of wirecard, their auditor EY had audited and certified wirecard's balance sheet for years with no objection. They were satisfied with a clumsy fake audit certificate for 2 billion euros in a Philippine account! For how many companies EY did the same? How superficially do they check their customers?
Unfortunately audit work, where the company decides on their auditor, has an in-built conflict of interests. If the auditor is too harsh/rigorous, then they risk losing the audit. If they're too lax and miss something material, then they risk lawsuits and regulator attention.
Then for large companies there's further complications liket doing the audit may preclude a company from doing other (more lucrative) consultancy work, or that large companies essentially only use one of 4 companies to do their audits, which leads to people rotating through that but little effective competition.
Does it ever pan out the way? I'm speaking of the liability on the partners. There have been a number of these in recent times involve pretty much all of the big firms.
https://www.google.com/url?sa=t&source=web&rct=j&url=https:/...
How is this a thing ?
A lot.
Like a lot a lot.
The entire* commodities sector is built on promises like this.
The entire shipping and freight sector.
The entire commercial paper market.
Its promises, redundancies, assurances, and credit.
It usually doesn't go wrong. As long as bond holders get their 2% and common stock shareholders get wiped out, everything is A-OKAY.
(entire is hyperbole, the point is clear, don't be that guy)
Edited for spelling
Seems like the two companies weren't very close even before that, the name change was required as part of a legal settlement with Arthur Anderson.
https://en.wikipedia.org/wiki/Accenture#Split_from_Arthur_An...
>For how many companies EY did the same? How superficially do they check their customers?
Public perception of audits is basically a giant example of survivorship bias. All the stuff that auditor do catch generally gets fixed without it making the news. Cause you know confidentiality.
It's not a widget factory where six sigma is possible. It's a messy imperfect process, because well the global economy & most businesses are. 100% is about is plausible as demanding that all programmers globally write bug free code. It's just not happening.
That said...2 billion is like 1/3rd of the company assets. That's one hell of an oversight even in light of the above.
OTOH, why does a German company keep 2 billion euros in a Philippine account, that’s strange.
Worked for a fintech company a few years back that used Wirecard as the processor for one of their products. Somehow they managed to lose the PK/FK relationship between accounts and transactions (or something like that). A whole lot of our customers suddenly started getting other people's transactions on their accounts. It was the final straw that shutdown the entire product line and we moved on to other providers for new projects.
So, not at all surprised they don't know where their money is.
I keep imagining a Monty Python-esque skit:
"Was it stolen? We don't know."
"Was it spent? We don't know."
"Was it lent? We don't know."
"Was it transferred? We don't know."
"Was it burned? We don't know."
Coincidentally, or maybe not, the company's last fictitious balance sheet, which was published in November of last year, right before the scandal was revealed, reports approximately $2B in long-term debt.[a]
So, as much as Wirecard was in the business of processing financial transactions ($124B last year!), it was also secretly performing a magic act of borrowing money and making it disappear into thin air. In a way, it's been an "impressive" performance.
On a more serious note, I hope Wirecard's failure is not seen in hindsight as a "Creditanstalt moment."[b]
--
[a] https://ir.wirecard.com/download/companies/wirecard/Presenta...
[b] The failure of Creditanstalt, an Austrian bank, in 1931, marks the beginning of the Great Depression in Europe: https://www.bis.org/publ/work333.pdf
I’ll hazard that we’re seeing only the firsts in a wave of [cooked up] companies imploding.
[0] https://www.wsj.com/articles/massive-forgery-helped-hide-3-b...
https://news.ycombinator.com/item?id=23611347
https://news.ycombinator.com/item?id=23573386
https://news.ycombinator.com/item?id=23598824
https://news.ycombinator.com/item?id=23438323
This, from a year ago, reads interestingly now: https://news.ycombinator.com/item?id=19737344
It left me confused and unsatisfied.
It's going on, with a variety of companies, every day. The entire system is beyond corrupt. Regulators are siding with frauds instead of investigating them.
A major red flag of corporate fraud is attacking journalists and blaming "short-sellers". Have these entities ever caused the demise of a legitimate company?
Based on more recent photos, it was just a phase. Maybe the company fixed its issues before it got caught?
Bafin (german bank watchdog) just froze the accounts, incl. cards of Boon, which is a wirecard subsidary.
If every man, woman and child in Germany chipped in $1,000 that still isn't a billion dollars.
N'ah! When it comes to big banks, big industry, big infra projects, German state institutions are super corrupt, it makes Wall Street and the City of London look like saints.
The mandate from the EU is that all kinds of stuff must be offered via tender europe-wide which is for many things a colossal waste of money and enviromental resources (e.g. a Polish company wins a tender for a construction project in Spain and now has to move all the machinery and staff through Europe and back, that's NOT sustainable!), and while government entities are allowed to judge bids by sustainability or profitability (i.e. purposefully offering an unprofitable bid in the hopes of making the profit with exploiting "change requests"), they rarely have the knowledge to do so.
Whilst you'd hope that lessons were learned, I'm not sure they were.
€1.9bn is pocket money compared to Wall St's and the City's more creative frauds.
The UK is currently dealing with a government minister who was involved in questionable planning oversight for a single development scheme worth £1bn - and that's barely even a footnote in the news here.
When the FT and others started raising concerns about Wirecard's finances, BaFin took what I believe was an unprecedented step and sued the FT.
A better approach might have been to launch an earlier investigation into whether the allegations had any substance to them.
There also need to be lessons learned from an audit perspective. EY signed off on previous years accounts which now appear that they might have had issues...
In this sense, it's the Germans that need to learn something. It seems there is awareness of this[0].
Hopefully others will learn from it too, anyway.
[0]https://www.bloomberg.com/news/articles/2020-06-22/wirecard-...
Merkel might have to step in to clean this up -- it's embarrasing because of the number of German institutions that protected this fraud. The German Financial Regulator went after professionally accredited investigative journalists and seemed to indulge in other face palms.
Don’t know if the OP is British or living there, but it’s possible that this is what’s happening and they don’t mean “all Germans ...” and just mean “The appropriate body in Germany the country ...
In Germany shortselling has an incredibly bad reputation. I think this is a problem.
The SEC had also data provided from professionals that Madoff is either fraud or a ponzi and always ignored it. The sentence above was enough that they did not further investigate him.
The Munich prosecutor's office, which is already investigating Braun on suspicion of manipulating Wirecard"s accounts, said "We will now look at all possible criminal offenses."
C'mon this is Europe... We are forgetting quickly here..
Trade on shares in the
company was suspended
If it only was suspended at the Frankfurt stock exchange which is mentioned in the article, it would be interesting to see how it is doing at other exchanges.
Google is still showing realtime Frankfurt prices. Currently at a market cap of about €350M.
And what is the reason behind that? Is it guaranteed that shares of a company that files for insolvency are worth 0? And therefore the exchanges want to save uninformed investors from buying them?
That you can not trade the stock for now. Trading has been resumed. On many stock exchanges there are rules for this. Something very common.
> And what is the reason behind that? Is it guaranteed that shares of a company that files for insolvency are worth 0?
No. The company could recover, could get bought etc. As a stock holder you are the last in line. Should the company get liquidated, bond holders will have a higher priority for any money recovered.
> And therefore the exchanges want to save uninformed investors from buying them?
No. Please look up Hertz, the car rental company and what is happen recently the stock. They are bankrupt, people are buying the stock and Hertz was even allowed to issue more shares.
Eh, sort of. The bankruptcy judge said they could, but the SEC said they had some "questions" about the offering's prospectus and Hertz basically withdrew the offer after that. It's not clear whether the company actually sold any shares.
Trading had resumed by then. It was supended temporarily (for one hour) just before the announcement.
Since the company has filed for insolvency the shares can no longer be traded.
> Is it guaranteed that shares of a company that files for insolvency are worth 0?
When a company files for insolvency it means the companies total liabilities are greater than the total assets.
And when this happens the company is handed over to a liquidator and they then decide how to handle the companies future.
What the liquidator normally does is try to sell the company or parts of the company to other third parties.
With the proceeds of that sale they then pay back the debt.
Then if any money is left over they split that money between the shareholders.
But naturally since the debts are greater than the assets the shareholders will get very little of their original investment back.
Since the shareholders are last in the line for the money they tend to lose the most.